Affected by multiple factors, oil, natural gas and other energy prices have been pushed up sharply this year, and many international energy companies have made a lot of money as a result. According to the latest financial report, the world's six largest oil giants$Exxon Mobil Corp (XOM.US) $、$Chevron Corp (CVX.US) $、$Shell PLC (SHEL.US) $、$TotalEnergies SE (TTE.US) $和$BP P.L.C. (BP.US) $、$Western Oil (OXY.US) $Profits in the second quarter of this year totaled about $68 billion, a record. Against a backdrop of strong profits, oil companies began to buy back and pay dividends to provide substantial returns for shareholders.

Strong buybacks and dividends

In the second quarter, the oil majors' free cash flow continued, supporting more dividends and buybacks. The big six oil majors have made huge buybacks and dividends after making record net profits in the second quarter, thus bringing considerable returns to shareholders.

Both Western Oil and BP P.L.C. use abundant profits to buy back and improve debt. Western Oil has shrugged off most of the debt it took on to acquire rival Anadarko Petroleum in 2019; in the second quarter, it repaid $4.8 billion of debt and launched a $3 billion share buyback program. BP P.L.C. announced a 10 per cent increase in the quarterly dividend to 6.006 cents a share; BP P.L.C. said he planned to complete a $3.5 billion share buyback before the third-quarter results were announced. Looking ahead to 2022, BP P.L.C. still promises to spend 60 per cent of his remaining cash flow on share buybacks and intends to use the remaining 40 per cent to further strengthen his balance sheet.

Second, TotalEnergies SE's board of directors approved the second interim dividend of 2022, with a dividend of 0.69 euros per share, an increase of 5% over the same period last year. The company's board of directors also authorized to continue to buy back up to 2 billion US dollars of shares in the third quarter. Shell plans to buy back up to $6 billion more in the third quarter, having bought back about $8.5 billion in the first half of this year; however, it maintained its second-quarter dividend at 25 cents a share.

JPMorgan Chase & Co analyst Christyan Malek said: "the increase in buyback scale shows that Shell is full of confidence in the cash flow scenario during the 2023 operating period." While the absence of an increase in dividends may put pressure on share prices today, the accelerated buyback program further expands the scope for future dividends per share.

Chevron Corp's share buyback followed closely the buyback plans of other oil majors, increasing the top of its annual share buyback guidance range from $10 billion to $15 billion.

Sustainability of buybacks and dividends

The high price of crude oil in June explains the surge in the performance of several oil companies in the second quarter. Therefore, the price of crude oil is also very important for oil companies to continue to carry out high buybacks and dividends.

Although oil prices have fallen recently, they are more likely to reflect concerns about a future recession. In fact, the global market is still in tight supply, the oil market fundamentals are still good and are unlikely to continue to plummet.

The International Energy Agency (IEA) predicts that global oil demand in 2023 will exceed pre-epidemic levels, approaching 102 million barrels per day. Ole Rikard Hammer, senior analyst for oil and tankers at Arctic Securities, a Norwegian investment bank, said global oil demand is growing and inventories are very low, which is a typical prerequisite for rising trade volumes.

BP P.L.C. said in his second-quarter results that oil prices were expected to remain high in the third quarter due to supply disruptions in Russia, a decline in spare capacity and inventories below the five-year average. Scott Sheffield, CEO of Pioneer Natural Resources, also said recently that the average price of WTI crude oil in the United States could reach $100 a barrel or more in the next five years due to rising demand and extreme supply constraints.

Jeff Currie, chief commodities analyst at Goldman Sachs Group, believes that despite the slowdown in demand growth, supply is still severely limited due to years of underinvestment, market demand is still higher than supply, and there is a supply-demand deficit of 1 million b / d. With regard to the impact of the economic slowdown, the obvious feature of the deep recession is the rising water in futures, which has not yet been seen, and the futures price of crude oil is still lower than the spot price.

Bank of America Corporation also believes that even if OPEC + achieves its latest production target, it may not be enough to quell high oil prices, because the proposed price caps on Rosneft in Europe and the United States may lead to a counterattack from Russia: reducing production and supply, which could push the price of Brent crude above $130 a barrel.

Behind the return to shareholders is the unwillingness to expand production.

The supply side of crude oil shows no signs of easing. Not only OPEC members are unable to increase production, but the willingness of oil majors to invest and expand production is also low. According to Reuters calculations, BP P.L.C., Shell, TotalEnergies SE, Chevron Corp and Exxon Mobil Corp produced a total of 14.6 million barrels of oil equivalent per day in the first half of 2022, about 10 per cent lower than before the outbreak.

In addition to the global recession or depressing demand, one of the key reasons why oil majors are reluctant to invest in new projects is that the world is moving towards decarbonized green energy.

"our investment has more than doubled from last year to develop traditional and new energy businesses," Chevron Corp CEO Mike Wirth said in a statement. Vicki Hollub, chief executive of Western Oil, also said the company planned to use high oil and gas prices to speed up debt repayments and cash handouts to shareholders, but would not increase oil production.

Bernard Looney, chief executive of BP P.L.C., said after the company recorded its highest profit in 14 years: "given all the uncertainties in the world, now is not the time to lose the rules." But BP P.L.C. 's spending budget of $140 to $15 billion in 2022 will remain unchanged and will not change its goal of reducing oil and gas production by 40 per cent by 2030, as part of Looney's ambition to switch to renewable and low-carbon energy. BP P.L.C. spends about 2/3 of his budget on oil and gas in 2022.

Recently, however, some companies have moderately increased their spending plans for 2022, but they are still within their previous target spending range. Most of the additional funding is concentrated on projects that can start production within a short period of time, or speed up projects that are already in progress.

It is clear that oil and gas giants are reluctant to invest more of their record profits of nearly $60 billion in new production when considering the impact of the recession and climate change on future fossil fuel demand. Reluctance to spend could exacerbate energy supply tensions, which have pushed inflation to a multi-year high and sparked calls from consumers and opposition leaders for the government to raise taxes on energy companies.

This pattern of spending contrasts sharply with previous cycles of high oil and gas prices, such as the boom in the late 2000s, which spurred fast oil producers to spend more to boost production.

The refining capacity of energy companies is even tighter. Oil refiners are not only facing years of stagnant growth and regulatory delays, but are also being eliminated. The stupidest idea of ESG investors protesting against large institutions owning energy stocks is that forcing them to sell would limit the capital needed to operate. In the past three years alone, four refineries in the United States have been closed and two have been partially closed. Two more are planned to close.

Start with simple supply and demand. A flood of votes, regulations and protests to end fossil fuels led to the lowest oil and gas production discovered last year since 1946. Since then, however, global household demand has more than tripled, requiring more products, which in turn requires more oil production. Between now and 2050, the United Nations goal of zero carbon emissions, the demand for traditional energy will not only generate more free cash flow, but also significantly increase future dividends.

Conclusion

Will we be surprised when the limited supply encounters a rise in crude oil prices as a result of rising demand? The answer is obvious. The historic and unique opportunity for investors is that, at a time of global energy transformation, investors end up earning energy dividends from the highest quality and safer surviving operators than ever before. The energy dividends of the oil giants that bring high buybacks and dividends have never been bigger.